ECON 4400 Midterm: F10_Midterm_A_Answers.pdf
Document Summary
Write your name and student number at the top of this page. Each question answered is worth 10 points, the total is 40 points. Be clear what formulas you use to arrive at a solution, the actual numerical answers are not important. If you think a question is ambiguous or not enough information is provided to answer it, explain why. you have 75 minutes: brie(cid:135)y evaluate all statements. Explain whether that still holds under imperfect markets. (d) assume interest rate this year is 5%; Explain. interest rate next year is 15%. (e) income stream a is (50, 50). Now assume that (cid:133)nancial markets are im- perfect: the lending interest rate is 8%, the borrowing interest rate is 12%. Under what conditions is a better (only give intuition): not true. The choice also depends on whether they he/she has funds for investment or needs to borrow. That depends on timing of earnings stream and on time preference: not true.
